Cyber threats continue to become more complex and much more pervasive. With ransomware, state-sponsored bad actors, and the increasing use of artificial intelligence, protecting your organization and all your portfolio companies must be at the forefront of your mind.
In a recent report published by Accenture, 68% of their private equity (PE) clients saw an uptick in cyber incidents during the month of a deal closure. When cyber attacks succeed, the average ransom paid for a midsized company is over $1 million.
While many PE business leaders are aware of cyber risks, according to Accenture, just 27% feel that their organization is resilient.
A Standard Approach to Risk Management
Resilient organizations can effectively prevent attacks, respond to and recover from incidents, and adapt to new threats, all while continuing to operate.
For PE and venture capital (VC) organizations, this means ensuring consistent resiliency across both their portfolio companies and their overall investment strategy.
Gaining resiliency means applying four core functions of a strong cybersecurity program:
1. Identification
To determine which systems, assets, and data are at risk, a comprehensive assessment will need to be performed.
This comprehensive assessment will address several aspects:
- Risks: Identifying any potential threats that could impact both individual portfolio companies and the overall investment strategy of the PE or VC firm. To fully grasp these risks, it's essential to understand how technology and data are being utilized.
- Vulnerabilities: Understanding vulnerabilities means examining systems and software to identify weaknesses that cyber attackers can exploit.
- Impacts: Understanding the potential impacts of an attack is critical. This includes influences on the organization's finances, operations, and reputation. Prioritize all impacts by severity.
2. Protection
Once all risks and vulnerabilities are identified, take steps to safeguard your critical assets and services:
- Develop and Manage a Cybersecurity Roadmap: With impacts now prioritized, create a program that mitigates these impacts. This includes using either technology-based controls, such as password security, or policy and compliance controls, like establishing roles-based access to systems and data.
- Deliver Security Awareness Training: Employee awareness training is an important aspect of the cybersecurity roadmap. Consider working with all portfolio companies to provide consistent focus and messaging. A 2024 Verizon data breach investigations report revealed that 68% of all data breaches involved a non-malicious human element, such as a person falling victim to a social engineering attack or making an error.
- Third-Party Risk Management (TPRM): PE and VC firms must understand and manage third-party risk across their portfolios. PE and VC firms routinely use third parties to outsource technology functions, allowing them to reduce costs. While this can be a smart business decision, it is important to include cybersecurity requirements in all contracts and ensure all third parties are subject to routine monitoring
3. Detection
Routinely monitor the environments of the PE or VC organization and all portfolio companies to identify problems. Leverage software and services that protect the entire attack surface, including:
- Network Traffic and Data Transmission: Monitor all network traffic in real-time and provide alerts, reports, and analysis. Consider preventing data from being accessed or altered without strict permission. Utilize encryption to protect data during transfer and evaluate all third-party vendors who transmit and utilize any data.
- Access Control: Authenticate all users based on their role and monitor access in real-time. Ensure only authorized users have access to logs and network configuration information. Require the use of unique user IDs and strong passwords and consider employing multi-factor authentication across all portfolio companies.
- Endpoint Monitoring: Typically, a target for cyberattacks, network endpoints such as laptops, tablets, and mobile phones may not carry the same level of protection as the core of your network. While software can be deployed to detect and respond to threats across all devices connected to the network, consider creating strict policies for “Bring Your Own Device” (BYOD) access and data retention.
4. Response & Recovery
Implement processes to take action, contain, and restore all data and functionality after an incident. This requires planning and a commitment to execute successfully. Consider the following:
- Create an Incident Response Plan: Define response processes and the technologies used in a formal plan that specifies how to respond to different types of cyberattacks. Be sure to identify (by name) and assign individuals to an incident response team and obtain management approval so everyone knows their role during a response.
- Containment, Eradication, and Recovery: When an incident occurs, the incident response team will learn what systems are impacted, and use all tools at their disposal, including isolating or shutting down systems to fully eradicate the situation. During this time, the team will continuously assess the ability to recover so systems can be brought back online faster.
- Post-incident Activity: Once fully recovered, ask the incident response team to report on the incident timeline, all impacts to systems and data, and the steps taken to contain and remediate the incident. Consider notifying all impacted customers for transparency and to maintain a high level of trust.
This standardized approach to risk management and cybersecurity across the entire portfolio of investments allows Private Equity and Venture Capital firms to achieve greater efficiency, consistency, and strategic oversight while reducing overall risk exposure and costs.
Transforming Security into an Opportunity
The value of having a robust cybersecurity function in PE and VC organizations and their portfolio companies is clear. What is not so clear is that building that function within your company is the correct strategy.
Vistrada’s approach to vCISO services means proactively managing your cybersecurity program to mitigate risks while significantly lowering your operating expenses.
Consider leveraging an experienced partner who can bring vCISO capabilities to your organization. With dedicated planning services and incident response, a vCISO will enable you to prioritize IT spending, while providing the latest cybersecurity and compliance knowledge and immediate access to experts when you need them.
Contact Vistrada to see how we can help.
